The misconduct accusations followed an allegation of sexual assault, two people familiar with the matter said.

The departure of Binny Bansal, 37, one of the co-founders of Bangalore-based Flipkart, could be a setback for Walmart's efforts to compete with Amazon.com Inc in India's huge consumer market. A tech-savvy billionaire, Bansal took over as CEO of Flipkart in 2016. He became the chairman and group CEO of the e-commerce company this year.

Walmart paid $16 billion for a roughly 77-percent stake in Flipkart in May. The investment is the U.S. retailer's biggest acquisition and was a major move in its efforts to compete against Amazon's growing market share at home and abroad.

Walmart announced it would acquire the stake in Flipkart in May and completed the deal in August. In a note sent to Flipkart employees, which was seen by Reuters, Bansal said recent events led him to step down from his role as chairman and CEO. He said the events related to a claim of misconduct against him, “which was uncorroborated after a thorough investigation completed by an independent law firm.”

Bansal did not give details of the nature of the claim. “The allegations left me stunned and I strongly deny them,” he wrote.

"The investigation, however, did bring to light lapses in judgment, particularly a lack of transparency, related to how I responded to the situation," he said, without elaborating further.

Neither Bansal nor his representatives responded to requests for comment. Flipkart did not respond to requests for comment.

A person in the United States familiar with the Walmart investigation said "a claim of sexual assault against Binny" came to its attention in late July. The accusation dated to a few years earlier and was made by a former Flipkart associate, who was not with Flipkart at the time, the person added.

Walmart said in a filing that it conducted its own investigation into the allegations, without saying what the accusations were.

"While the investigation did not find evidence to corroborate the complainant's assertions against Binny, it did reveal other lapses in judgment, particularly a lack of transparency, related to how Binny responded to the situation." Walmart said. "Because of this, we have accepted his decision to resign."

The person familiar with the matter at Walmart said that Bansal had hired two private security firms at the end of 2016, "to make this matter go away," referring to the alleged assault claim. The person did not disclose the names of the security firm or the parties involved and Reuters was unable to confirm them.

"Binny had an opportunity to disclose these allegations to us when we were in talks (to invest in Flipkart)..but he did not," the person said.

ACCELERATED TRANSITION

Hailing from the northern Indian city of Chandigarh, Bansal is one of India's best known entrepreneurs after starting Flipkart in 2007 with Sachin Bansal. The duo, who hail from the same city but who are not related, formed Flipkart shortly after quitting Amazon.

Originally an online bookstore run out of a two-bedroom apartment in India's technology hub of Bengaluru, Flipkart grew over the next decade to become India's most valuable technology start-up. Its units include Flipkart, which sells general merchandise, the clothing and accessories retailer Myntra, the fashion portal Jabong and PhonePe payments app. Walmart has said it may make an initial public offering of Flipkart publicly within the next four years.

A separate source directly briefed on the matter in India, who did not wish to be named, said Bansal is still a shareholder in Flipkart and has not expressed any desire to sell his stake. Walmart has not offered to buy him out, the source added.

Walmart said Bansal had been contemplating a transition for some time and that the companies had been working together on a succession plan, which had now been accelerated. In his note to Flipkart employees, Binny Bansal said that he recently had thought he might continue as CEO for “a few more quarters.”

Kalyan Krishnamurthy, who heads the company's main Flipkart e-commerce operation, would now act as chief executive for a broader group of businesses including apparel websites Myntra and Jabong, Walmart said

Ananth Narayanan, who is the CEO of Myntra and Jabong, will continue in those roles and will now report to Krishnamurthy.

The social media #MeToo movement against sexual harassment that began in the United States over a year ago has gained traction in India in recent weeks.

Walmart's shares traded down 1.15 percent at $102.68 per share in afternoon trade.

(Reporting by Nandita Bose in New York and Euan Rocha in Mumbai, Additional reporting by Aditya Kalra in New Delhi, Nivedita Bhattacharjee, Siddharth Cavale and Nivedita Balu in Bengaluru and Sankalp Phartiyal in Mumbai; Editing by Patrick Graham and Clive McKeef)